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4 things to do if you win the lottery

The first thing to do if you win big in the lottery is nothing, says a financial planner.

Craig Henshaw holds his cheque for a $21.4 million Lotto Max jackpot on Sept. 27, 2011. Far from freeing him, the money wound up pushing him to a decision to quit the job he loved. (Nick Perry / CP file photo)

Wed., June 6, 2012

My husband and I have a weekly ritual of walking the dog and buying a lottery ticket from the local convenience store. We’ve never won anything more than a free ticket, but we still dream about retirement travel, helping family members and endowing our favourite charities.

But winning a big jackpot is not necessarily the route to future happiness. Plenty of stories profile winners who soon became losers when they frittered their money away or lifetime friendships were put to the test.

I’d like to think that if we were beneficiaries of a huge windfall we’d avoid some of the obvious pitfalls, but I know the first thing we would look for is solid, unbiased advice from someone we trust. That’s why I was particularly interested in the recent Advisor.ca article “Dealing with financial windfalls,” by CIBC Wood Gundy Investment Advisor Stanley Tepner.

Tepner says that although financial advisors may want to demonstrate their investment acumen or planning smarts, the best advice they can give is to stop and do nothing. “I tell clients not to make any consequential decisions until they have had time to absorb their new circumstances.”

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This advice applies to spending and giving money away as much as it does to investing the newly acquired assets. He says there is no reason to do anything quickly with a large sum of money, particularly if you are under duress or fending off those looking for a piece of the new pie. He says, “The best place for the money is in short-term savings vehicles, where it should be left until a proper plan is ready to direct how the money is to be allocated and deployed.”

But remember that most windfall recipients need better advice and more of it than before. You may also need to talk to accountants, lawyers and estate planning/insurance specialists. Therefore it is particularly important to satisfy yourself that your financial advisor has a solid network of compatible professionals and is able to effectively coordinate all of their efforts.

2. Educate yourself:
I Before you commit to anything, think about your short, medium and long term goals, your need for current cash and the legacy you want to leave.

Be prepared to start simple unless you are already a sophisticate investor. Make sure your advisors know you won’t consider any investment strategies you don’t understand and that you won’t hesitate to seek additional unbiased advice if you are uncomfortable with any of their suggestions.

3. Evaluate:
Once your advisors understand your goals and needs they can prepare projections and make recommendations about how you should use your financial assets. They can also provide a list of recommended professional services you may require to accomplish your objectives. But remember, this is your plan. If it does not fully reflect your intentions don’t be afraid to send your advisors back to the drawing board,

4. Allocate:
At this stage your advisors will implement the plan you have decided on. They should continue to be accessible and report back to you regularly on the progress of your plan. They should also continue educating you about planning and investment options.

A survey by Ontario Lottery and Gaming of 298 winners of $1 million or more from 1991 through 2005 gives an interesting snapshot of how these people used their money.

90 per cent put money in the bank.

73 per cent shared money with family or friends.

65 per cent bought a new car.

60 per cent paid off debts.

56 per cent took a vacation.

48 per cent donated to charity.

36 per cent bought a house.

38 per cent paid off mortgage.

31 per cent paid for education for self/family.

14 per cent changed their overall lifestyle.

7 per cent bought a boat

Regardless of how you ultimately choose to enjoy your windfall, the money will go a lot farther if you stop, take a deep breath and get good advice before you go on a spending spree.

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